Data Driven Credit Solutions for African Farmers

Commitment by

Gro Ventures

In 2013, Gro Ventures committed to create new credit models that will enable large financial institutions to lend effectively into African agriculture. The commitment aims to increase lending to small-scale farmers, who are responsible for 90 percent of production, but to whom banks are reluctant to lend because of their inability to measure and understand associated risks. This inability to model risk is fundamentally a data issue, as reliable and timely information on key indicators including weather, soil, production cycles, is either non-existent or outdated. Gro will work with a number of institutions to aggregate existing and collect new comprehensive and real-time agricultural data, while simultaneously working with large banks to develop innovative financial products.

Tabs

Commitment

Launched

2013

Est. Duration

2 years

Estimated Total Value

$28,000,000

Region

Africa

Countries

KENYA,
Tanzania,
UGANDA

Commitment by

Gro Ventures

Partner(s) of the Commitment Maker(s)

African Risk Capacity

Details

APPROACH
As a data business, Gro Intelligence, an operating unit of Gro Ventures, is closing information gaps in the African agricultural industry. By using timely and relevant data and leveraging partnerships, Gro commits to creating new credit models that will enable large financial institutions to lend effectively into African agriculture. Gro will work with financial institutions to mobilize $25,000,000 of credit to farmers in East Africa.
Big data is frequently broken down into 3 'V's': Volume, the amount of data in existence; Velocity, the pace at which it is changing; and Variety, the different forms in which it can come.
By aggregating and collecting timely agricultural data, Gro Intelligence is addressing the first 'V,' volume; and the mechanisms through which it is doing this are effectively capturing the information's velocity and variety. With the data analytics it performs and credit models it will create, Gro is adding a fourth 'V' to the equation: Value.
Their other commitment partner, Africa Risk Capacity (a joint AU and WFP commission), is helping address the 3 'V's' of data by being a major provider for weather related data to enhance Gro's database. This is Africa Risk Capacity's first partnership with a commercial, privately run company.
Gro Ventures is a company that specializes in Africa, commodities markets and data analytics. They are effectively financial engineers that are focused on creating a new wave of products that can be used by players across the commodities value chain in Africa.
ACTION PLAN
This commitment will have five phases.
The first phase is Data Integration and Harmonization. This will begin in January 2014 and last for six months. Gro will add African Risk Capacity (ARC) information to the database, as well as other existing East African Community (EAC) data sources, while concurrently creating apps to allow data access in user-friendly formats.
Phase Two is the Analysis of Lending Portfolios. This will also begin in January 2014 and will last until July 2014. During those months Gro will perform a thorough analysis of existing agricultural lending portfolios to obtain comprehensive risk profiles.
Phase Three, between June and December 2014, comes in two parts. The first is identifying, profiling, and formalizing farmer based organizations (FBOs) that will benefit from the loans. The second part is identifying potential partners that are already working with farmers, and have the potential to add value to the project.
Phase Four will occur between October and December 2014, during which time Gro will create base lending models. They will customize the lending models to suit the partner banks, farmer groups, and other involved players.
The final component is Phase Five, between October 2014 and September 2015, when Gro will work with banks to disburse the credit loans to farmer groups.

Background

Although agriculture accounts for more than 30% of Africa's GDP and employs more than 60% of its labor force, less than 1% of commercial lending goes to agriculture. The loans that do go into the sector typically go to large-scale farms, ignoring the smallholders who are predominant in the continent and responsible for more than 90% of total production. As a result, the agricultural sector is by and large faced with a very high cost of capital.
Banks with big balance sheets are reluctant to expand further into African agricultural markets because of their inability to measure and understand agricultural risk. With better data on weather, production cycles and the farmer banks can develop appropriate financial products for smallholders and provide them with capital with massive transformative potential.

Partnership Opportunities

Progress Reports

March 2014
The first phase of Gro Intelligence's project, running from January to July to 2014, is Data Integration and Harmonization. The goal of this first phase is to add African Risk Capacity (ARC) data to the existing database, add East African Community (EAC) focused data sources to the database, and create applications allowing users to access information in a user-friendly format. This first phase is running concurrently with Phase Two, Analysis of Lending Portfolios. In this second phase, Gro Intelligence is analyzing existing agricultural lending portfolios with the aim of obtaining risk profiles.
In terms of accomplishments and milestones, the Gro Intelligence team has successfully loaded all the relevant data onto the database, and is now working to complete the processing of this data so that it can be ready for use in modeling purposes - meaning that Phase One is nearing completion. Work on Phase Two is in its earlier stages, but is still set to be complete by the original goal of July 2014.